New Zealand Dollar Tipped to Hold the Advantage over Sterling Near-Term

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The Pound to New Zealand Dollar exchange rate is at 1.7935 as the new trading week begins in earnest with traders returning to their desks following an elongated Easter weekend.

This may mean the Reserve Bank of New Zealand (RBNZ) may be in no hurry to increase rates if inflation is higher, or as high as expected which is unlikely to assist any NZD strength.

“We expect food to rise +2.2% q/q and fuel rose +5.2% q/q hence the Q1 CPI pop is all about food and fuel, two components usually excluded when central banks assess underlying inflation trends (ex-food and fuel is +0.2%). Nevertheless, Q1 CPI rising to 2.0% y/y means RBNZ Governor Wheeler has finally met his 2% mid-point inflation target and can retire in September having finally achieved his KPI. Market range +0.4% to +1.0%, while many look for +0.9% q/q,” says TD Securities in a note to clients.

Remember to keep an eye on Donald Trump and his increasingly internationalist agenda.

The New Zealand Dollar is highly sensitive to market sentiment and the NZD usually falls when markets run scared.

"Rising geopolitical risk is undoubtedly NZD-negative," says Jason Wong at BNZ in Aukland. "BNZ’s risk appetite measure is now well down from its recent high and this has dragged our short-term fair value estimate down."

Retail Sales Data Dominates the Week for the Pound

The main data release for the Pound this week will be March Retail Sales, on Friday, April 21 at 9.30 GMT.

Expectations are not optimistic about the result due to recent disappointing Retail Sales data from the British Retail Consortium (BRC) overlapping the same period.

Analysts forecast headline sales to fall -0.2% compared to the previous month but to rise by 3.6% from the previous year.

Core retail sales expected to fall -0.3% from February and rise 4.0% year-on-year.

“U.K. retail sales are scheduled for release in the week ahead and while the uptick in wages points to a potential upside surprise, the British Retail Consortium reported weaker spending and after last month’s healthy rise, a pullback is expected. There’s significant resistance for GBP/USD between 1.25 and 1.2630,” says Kathy Lien, managing director of BK Asset Management.

"With analysts expecting a slight contraction in March retail sales. Any positive surprise could enhance GBP-bulls, while a disappointment could bring the BoE doves back to the market," says Ipek Ozkardeskaya at London Capital Group.

The New Zealand Dollar has fallen sharply in recent months, making it one of the worst performing developed world currencies in the second-quarter, but strategists at Toronto-based investment bank TD Securities say the rout has gone far enough and the Kiwi currency now offers an attractive "risk/reward" to those brave enough to get behind it.

The New Zealand Dollar could finally be due some respite from the relentless weeks-long sell-off that has now more than reversed a respectable 2018 gain for the Kiwi currency, according to strategists at Morgan Stanley, who argue that current levels are an opportunity for traders to get "tactically bullish".

The New Zealand Dollar rose across the board Monday as markets responded to an easing of tensions between the US and China, following a trade-war-related detente at the weekend, although the latest foreign exchange forecasts from analysts at Rabobank suggest it might not be long before the Kiwi currency resumes its downtrend.